Trinity Med. Servs. v. Merge Healthcare Sols., Inc.

TRINITY MEDICAL SERVICES, LLC,PERFORMANCE LABS, LLCPRESTIGE WORLDWIDE LEASING, LLC v. MERGE HEALTHCARE SOLUTIONS, INC.

CIVIL ACTION NO. 17-592-JWD-EWD

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

January 8, 2020

RULING AND ORDER

This matter is before the Court on four motions for summary judgment filed by Defendant, Merge Healthcare Solutions, Inc. ("Merge" or "Defendant"): (1) Motion for Summary Judgment on Lost Profits ("Lost Profits Motion") (Doc. 77); (2) Motion for Summary Judgment on Misrepresentation and Omission Claims ("Misrepresentation Motion") (Doc. 78); (3) Motion for Summary Judgment Seeking Enforcement of Contractual Limitation of Liability Clauses ("Limitation of Liability Motion") (Doc. 79); (4) Motion for Summary Judgement on Claims by Prestige Worldwide ("Prestige Motion") (Doc. 80). In opposition, Trinity Medical Services, LLC, ("Trinity") Performance Labs, LLC, ("Performance Labs") and Prestige Worldwide Leasing, LLC ("Prestige") (together, "Plaintiffs") have filed memorandums in opposition to each of the motions.¹ Accompanying their memorandums in opposition, Plaintiffs filed Appendix I: Statement of Material Facts Establishing a Genuine Dispute. (Doc. 95.) Defendant filed a reply to each of the plaintiff's memorandums in opposition.² Defendant also filed Merge HealthcareSolutions, Inc.'s Motion to Strike Plaintiffs' Appendix I, ("Motion to Strike") which is fully briefed. (Motion to Strike, Doc. 112; Memorandum in Opposition to Merge's Motion to Strike, Doc. 115; Reply Memorandum in Support of Motion to Strike; Doc. 118.) Oral argument is not necessary. Having considered the parties arguments, the undisputed facts, and the law, the Court will:

a. DENY Defendant's Motion to Strike without prejudice. Defendant's objections to the evidence offered by Plaintiffs were noted and considered in conjunction with the Court's consideration of Defendant's motions for summary judgment. In ruling on summary judgment, the Court does not consider arguments and legal conclusions couched as facts.

b. DENY Defendant's Lost Profits Motion because questions of fact remain as to whether there were defects in the Merge LIS Software that impeded Performance Labs from restarting operations and progressing with testing. Therefore, the Court cannot say as a matter of law, Plaintiffs' cannot claim lost profits because it is too speculative or based on pure conjecture.

c. DENY Defendant's Misrepresentation Motion because questions of facts exist as to the intent of the parties, the inducement of the misrepresentations and the justifiable reliance of Plaintiffs on Defendant's representations and omissions. These questions of fact pervade whether the Plaintiffs can recover for fraud, negligent misrepresentation, and under LUTPA.

d. DENY without prejudice to re-urging the Limitation of Liability Motion because it is inappropriate for the Court to enforce the contractual limitation of liability clause at summary judgment as questions of fact remain regarding the Plaintiffs' claims for fraud and gross negligence. However, in the event that the exceptions do not apply, the contractual limitation of liability is not barred as a matter of law and is enforceable to bar any award for lost profits and limit Plaintiffs' recovery to what was paid under the Sales Order.

e. DENY Defendant's Prestige Motion because there is evidence that creates a question of fact as to whether Prestige lost contracts with Performance Labs when it shuttered. If a jury finds that the alleged defects in the Merge LIS Software was the cause of Performance Labs' failure, then a reasonable jury could likewise find that but for Performance Labs' failure, Prestige would have continued to provide staffing at Performance Labs.

I. Relevant Facts

Trinity is a Louisiana holding company and the sole owner of Performance Labs and Prestige. Performance Labs was a laboratory located in Mandeville, Louisiana that performed toxicology tests. Prestige provided employee leasing and laboratory management services to Performance Labs and other labs, including Pathway Diagnostics, LLC ("Pathway"). Blake Bourque is the only owner of all three Plaintiff companies. Pathway, which is not a party to this suit, is a laboratory owned by insiders of Trinity that performs toxicology tests and is located in Mississippi.

Merge is a developer and manufacturer of clinical laboratory software systems, including the Merge LIS™ software ("Merge LIS Software") at issue in this case.

As a toxicology laboratory, Performance Labs was subject to the Clinical Laboratory Improvement Act ("CLIA"). To be able to run tests on live patient samples, Performance Labs needed to be certified by the Centers for Medicare and Medicaid Services ("CMS"). CMS's certification was based on compliance with regulatory and statutory mandates to ensure patient health and safety. In June 2015, Performance Labs failed an inspection by the Louisiana Health and Hospitals Department ("LHHD") and CMS. The state and federal regulators found "condition-level noncompliance" that "constitute an immediate jeopardy to patients." (Def. Ex. C, July 31, 2015 Letter from CMS to Performance Labs at 4, Doc. 77-7.) As a result of Performance Lab's noncompliance, it was required to submit plans of correction to state and federal regulators and agreed to cease testing patients on two sets of equipment. (Id. at 5.) During an on-site visit in the fall of 2015, state and federal regulators again concluded that Performance Labs "demonstrated continued systemic and pervasive problems through the laboratory which has led to findings of continued immediate jeopardy." (Def. Ex. E, December 23, 2015 Letterfrom CMS to Performance at 4, Doc. 77-9.) Due to these findings, Performance Labs was sanctioned by the state and federal regulators and as a result:

(a) barred from accepting live patient samples (Doc. 77, Ex. F, December 30, 2015 Emails from CMS at 3);

(b) precluded from accepting payments from Medicare and Medicaid (Id.);

(c) required to notify all clients who ordered patient testing that the results were not accurate or reliable (Doc. 77, Ex. G1, January 12, 2016 Plan of Correction at 20, 46); and

(d) had their CLIA certificate suspended, prohibiting Performance Labs from performing patient testing. (Doc. 77, Ex. H, January 14, 2016 Email from CMS to Performance Labs.)

Facing this pressure from federal and state regulators and hoping to get Performance Labs back into compliance, Trinity negotiated with and on January 11, 2016, signed a Sale Order with Merge to lease the Merge LIS Software to use at Performance Labs and Pathway. As a result of the sanctions, Performance Labs also reduced their equipment and personnel to a barebones operation, employing only a technical supervisor and a lab technician. (Def. Ex. K1, M. Spruill Dep., at 117:17-19, Doc. 77-16.)

Also, in January 2016, Blake Bourque's brother in law, Kyle Mouton, along with Trinity's in-house counsel, Phil Martinez, opened Pathway in Mississippi. (Def. Ex. O1, K. Mouton Dep., at 17:19-22, 18:22-20:3, Doc. 77-22.) Pathway is not owned by Trinity. (Pl. Ex. 19, K. Mouton Dep., at 18:24-19:7, Doc. 95-19; Pl. Ex. 12, B. Bourque Dep., at 127-28, Doc. 95-12.) Most of Performance Lab's staff and equipment was moved to Pathway. (Def. Ex. O1, K. Mouton Dep. at 120:3-15, 30:9-10, 91:2-12, Doc. 77-22.) Trinity provided Pathway with start-up capital to pay expenses as well as management and IT services. (Id. at 106:12-19, 87:9-88:3.) Trinity allowed Pathway to use the Merge LIS Software. (Id.) In June 2016, Pathway began testing patient samples and billing clients using the Merge LIS Software. (Def. Ex. K1, M. Spruill Dep., at 154:23-155:5, 217:11-15, Doc 77-16.)

However, to prove compliance and become recertified under the CLIA, Performance Labs only performed validation and establishment studies until August 24, 2016, when CMS allowed Performance Labs to begin doing screening tests. (Def. Ex. S, August 24, 2016 Email from CMS to Performance Labs, Doc. 77-28.) During this time, it was under heightened scrutiny from federal and state regulators. (Pl. Ex. 5, C. Howell Dep., at 188:10-189:2, Doc. 95-5.) Performance Labs began with a small panel of tests and had an agreement with Pathway to reference any tests not offered for $85/sample. (Pl. Ex. 12, B. Bourque Dep., at 150:20-21, 203:18-204:11, 406:5-6, Doc. 95-12; Pl. Ex. 2 R. Poe Dep., 125:12-22, 144:2-145:21, Doc. 95-2.) On January 17, 2017, CMS permitted Performance to start conducing confirmatory testing. (Def. Ex. T., October 14, 2016 Email from CMS to Performance Labs, Doc 77-29.) On January 20, 2017, Performance Labs began accepting patient samples from one clinic. (Def. Ex. K1, M. Spruill Dep. at 189:8-19, Doc. 77-16.)

In February 2017, Performance Labs identified an issue with the tracking of quality control data in the Merge LIS Software and voluntarily ceased patient testing. (Def. Ex. W, March 6, 2017 Correspondence from Performance Labs to CMS, Doc. 77-32.) Performance Labs formulated a "work around" for the issue and indicated to CMS that the issue did not cause Performance Labs or Pathway to submit any incorrect testing results. (Id.) In March 2017, Performance Labs also reported other issues with the Merge LIS Software to CMS. (Def. Ex. X, March 17, 2017 Email from CMS to Performance Labs, Doc. 77-33.) Despite these reported issues with the Merge LIS Software, in August 2017, Performance Labs' suspension was lifted, it was recertified under the CLIA, and could bill Medicare and Medicaid following a successful onsite inspection in June 2017 by state regulators. (Def. Ex. U, January 24, 2017 Email betweenCMS and Performance Labs, Doc. 77-30; Def. Ex. Y, August 9, 2017 Correspondence from CMS, Doc. 77-34.)

Plaintiffs allege that the Merge LIS Software contained numerous defects but focus on two alleged defects, the Duplicate Container Defect and the Trojan Horse Defect. The Duplicate Container Defect allegedly resulted...